Mr. Toshihide Endo is the Commissioner of the Financial Services Agency (FSA). Since joining the FSA in 2002, Mr. Endo has held various executive posts, including the Director-General of the Supervisory Bureau and Inspection Bureau, the Deputy Director-General of the Planning and Coordination Bureau. When he was the Director-General of the Supervisory Bureau, he leads supervision of banks, broker-dealers, insurance companies and the Deposit Insurance Corporation of Japan. As the Director-General of Inspection Bureau, he integrated the process of on-site inspection and off-site monitoring, aiming for an in-depth understanding of the financial institutions and the financial system in effective manner. Also, as the Deputy Director-General of the Planning and Coordination Bureau, he was responsible for overall policy making for the financial system and markets, and the supervision of securities exchanges.
Prior to his posting to the FSA, Mr. Endo worked for the Asian Pacific Department and the Finance Department of the International Monetary Fund. Mr. Endo received a B.A. in Law from the University of Tokyo in 1982 and a M.Sc. in Economics from the London School of Economics (LSE) in 1986.
FIA Japan: As the new head of the Agency, what will be some of the priorities that you will focus on in the year to come?
To further contribute to the national welfare through sustainable corporate and economic growth and national asset building, I would like to prioritize the following measures to make FSA the incubator of financial businesses, while maintaining our existing administrative framework.
First of all, as technological innovations have changed financial businesses, it is of great importance that FSA nurtures them to develop financial services in Japan. In addition to its role as the regulatory and supervisory authority, FSA launched the FinTech Innovation Hub to discuss and exchange our views with startups, etc. and stay up-to-date with trends and the future direction of the industry. We will make the most of the acquired knowledge and information towards the development of the industry.
Second, regarding customer-oriented business conduct, we published common Key Performance Indicators that are comparable across investment trusts distributors in June 2018. We will also enhance visualization of products in the other types of businesses. At the same time, we will investigate how financial services are provided from the customers’ perspectives to encourage financial institutions to provide customer-oriented business operations.
Further, as part of our initiatives to ensure the soundness of regional finance and of financial intermediation services, we will set up a new team to conduct in-depth dialogue with a broad range of related parties, including regional financial institutions, in a neutral environment outside of Kasumigaseki [Ministerial Buildings], in order to consider how financing activities by regional banks could best contribute to regional economies and corporate activities.
In addition to the above, we will work on other items including the following:
(i) Examining governance of major financial institutions;
(ii) Contributing to the G20 meetings to be hosted by Japan in 2019
(iii) Establishing a framework that will make it easier for junior staffs to make policy proposals
FIA Japan: Can you shed some light on the recent reorganization of FSA and its purpose?
Since its establishment in 2001, the FSA had addressed the Non-Performing Loans (NPLs) issue as its main agenda. Now, new challenges have arisen, such as securing better financial intermediation, the transformation of the flow of household funds and the timely response to technological developments, including FinTech.
To better address these new challenges, the FSA reorganized itself this past summer. In addition to the existing Supervision Bureau, the “Strategy Development and Management Bureau” and the “Policy and Markets Bureau” were newly established.
The major objectives of this reorganization were:
・ to enhance its strategy development with a holistic perspective across financial services and to enhance its professional expertise;
・ to response in a timely manner to the changing environment surrounding financial markets and to develop a regulatory framework in line with IT and other innovations; and
・ to conduct more effective and efficient monitoring through seamless off-site and on-site monitoring.
Under the new organization, the FSA will try to address these challenges to facilitate the development of more effective and efficient financial services.
FIA Japan: Japan has enacted a regulatory framework for “High Speed Trading“ (HST) in April 2018, introducing for the first time a mandatory registration process that includes firms located overseas. In fact, this is the first “extra-territorial“ regulation ever implemented in Japan. What were the challenges to make this possible?
In terms of your question as to extra-territorial jurisdiction, this is not the first application in Japan. There are extra-territorial regulations that do not require foreign corporations to establish offices in Japan. For example, regulations for Authorized Operator for On-Exchange Transactions. Major hurdles in supervising HST operators include ensuring the effectiveness of the regulation and how to establish monitoring.
With regards to effectiveness, the regulation prohibits securities companies to accept the brokering of HST firms that are not registered. Also, as a requirement for registration of any foreign corporations engaged in HST, an agent must be appointed in Japan and the Foreign Authority must have given assurance to respond to any request for cooperation in case of a Japanese investigation.
With regards to monitoring, we will confirm the status of foreign HST operators’ management approach to preventing erroneous orders, etc. with their agents etc. in Japan, while gathering a clearer picture of HST characteristics and analyzing HST trends.
FIA Japan: As the deadline for registration is nearing, how is the process unfolding?
As long as the application for registration is submitted by October 1, 2018, any entities that are engaged in HST as of the implementation date of the Revised Financial Instruments and Exchange Act are permitted to continue trading until their applications are either approved or rejected. Seven entities have completed registration. In addition, other entities are in the process of registration and preliminary consultation. Looking at those engaged in HST prior to the implementation of the revised FIEA, we expect about 60 such operators will be subject to registration. We will respond appropriately to the HST operators’ requests for registration and preliminary consultation.
FIA Japan: When we last interviewed you in March 2014, as the then Deputy Director-General of the Planning and Coordination Bureau, you mentioned that “FSA will work towards the early realization of a comprehensive exchange“, which would list a large array of financial products. What are your thoughts today on this project?
It has become a mainstream trend among leading overseas exchanges to operate as comprehensive exchanges, integrating securities and financial instruments, as well as commodity trading. In Japan as well, we expect that, with the establishment of a comprehensive exchange that offers one-stop trading of a wide range of listed financial instruments, the following could be achieved:
(i) investors who have been trading on overseas exchanges (such as Chicago, New York and Hong Kong) will enjoy much greater convenience by trading in Japan without worrying about time difference, language and governing laws;
(ii) liquidity in commodity futures trading will be enhanced, hence supporting the commodity futures market. At the same time, securities and financial trading will also expand following the investors’ needs to hedge and further diversify their investments.
(iii) new domestic and foreign influential investors and brokers who enter the Japanese market will add to the depth of the market; and
(iv) all these factors can be expected to enhance the global competitiveness of the Japanese market and bring various other benefits.
“The Growth Strategy 2018”, approved by the Cabinet in June 2018, includes a directive to “continue to work towards establishing a comprehensive exchange promptly.” We will continue our active efforts to call on the parties concerned, including exchanges, to take the necessary measures to establish the comprehensive exchange as soon as possible.
FIA Japan: Both the Japanese government and the Tokyo Metropolitan Government have expressed their intentions to make Japan/Tokyo an international financial center. What barriers still need to be dealt with in order to achieve this goal? What benefits can Japan offer as an edge to attract even more market participants in comparison to some other growing markets such as China?
The Growth Strategy 2018 decided by the Cabinet in June 2018 includes the “development of Tokyo as an international financial center” among its measures to “facilitate financing activities by creating active financial and capital markets.” The financial market in Japan offers attractive opportunities with household financial assets of more than 1,800 trillion yen including about 1,000 trillion yen in cash and deposits. However, the registration processes for foreign financial businesses are sometimes thought unclear, complex and lengthy, and it has deterred some foreign operators from establishing a business base in Japan.
Therefore, FSA (i) has supported the Tokyo Metropolitan Government (TMG) to issue an English guidebook in September 2017; and (ii) in April 2017, set up the “Financial Market Entry Consultation Desk” to promptly support the “fast entry” of foreign financial business operators. This has provided support to foreign financial business operators for them to establish a business base in Japan with the cooperation of TMG, etc., while gaining their trust. Currently, five companies have completed the registration procedures.
Amid intensifying competition among financial centers such as growing markets in Asia, we will further make efforts to enhance Tokyo as an international financial center that attracts business activities, human resources, information and funds.
FIA Japan: This year, FIA Japan is celebrating the 30th anniversary of its establishment. In the past couple of years, our Japan Principal Trading Group (JPTG) has been providing official comments as the HST rule-making process was underway. Most recently, we launched a Virtual Currency Committee (VCC) to cover various themes in the virtual currency arena that are of interest to our members, and our Market Development Committee (MDC) is now working with asset managers, market makers and exchanges to help further the growth of ETFs in Japan. What are your thoughts as to how FIA Japan could best continue to support the development of our markets?
We understand FIA Japan has actively facilitated the sound development of financial and capital markets, by exchanging views with financial regulators and communicating market and regulatory information to the public. Especially, I would like to note FIA Japan’s (i) continuous and substantial support to establish a comprehensive exchange; and (ii) contribution to facilitating the smooth development and implementation of the HST framework by providing opinions and asking questions from a work-level point of view.
To perform effective financial administration for the growth of the financial and capital markets, I consider it essential that FSA staff members accumulate in-depth knowledge and develop capability to capture the accurate condition of financial trades and the essence of existing issues. FIA Japan is positioned to gather available recommendations as well as criticism from various financial business operators. We hope that the association will continue to communicate these work-level views and opinions to us to achieve constructive discussions towards the development of the financial and capital markets.